International Tax Review is part of the Delinian Group, Delinian Limited, 8 Bouverie Street, London, EC4Y 8AX, Registered in England & Wales, Company number 00954730
Copyright © Delinian Limited and its affiliated companies 2023

Accessibility | Terms of Use | Privacy Policy | Modern Slavery Statement

Internet advertising entities facing legal uncertainty

The internet advertising industry faces the greatest challenges of all searching for legal centainty when defining whether to collect the municipal tax on services (ISS) or the communication services tax defined by the states (ICMS) on the revenues arising from these services.

This is mainly due to the fact that taxpayers directly (if they are advertising services providers) or even indirectly connected to internet advertising (such as agents or intermediaries) have been dealing with both municipal authorities and state authorities defining that their activities are subject to their share of competence to tax.

Although controversy and disputes between ISS and ICMS are common, when dealing with information techlology there is always space for more controversy and new conflits of competence to take place. This is because, according to the legal certainty principle, taxation should be specifically defined, for each taxable event, and in many of the IT services, such as advertising, no legal provision has been that specific, giving room to a lot of interpretation by tax authorities.

The ISS is charged on the listed services described by law, among which there are a lot of definitions that could be strictly or remotely connected to internet advertising. The aforementioned list comprises from any intermediation, comission, agency or representation services to other related to advertising more as preparatory activities for advertising  such as data processing, software licensing, maintainance of internet pages, and graphic design composition for advertising etc. Those services are taxed in a range from 2% to 5% of the service depending on the municipality where the service provider is located.

Although the specific item of advertising as a vehicle is not listed, the municipality of São Paulo has repeatedly issued rulings in the last three months confirming that advertising and also internet advertising should be subject to ISS.

On the other hand, the state of São Paulo has issued tax assessments, in the past years, to relevant companies of the internet advertising market charging 25% ICMS, interest and penalties, considering that these companies (no matter their business model, or direct indirect connection to advertising) actually perform communication services without collecting ICMS.

Note that internet advertising has been around for a while, and to this respect neither federal constitution, nor these facts or ICMS legislation have changed since 1988 to justify the rise of those assessments. Thus, if everything remains the same, it seems that we are facing some new ideas from tax authorities, without the legal certainty that should precede them.

Internet advertising companies tend to take this controversy to Supreme Court. Some of them are already in judicial courts, some still in administrative level. All the judicial court cases have decisions or preliminary injuctions in favour of the taxpayer to avoid ICMS. Hopefully, legal certainty will prevail, and new ideas will be strictly connected to the new rules based on the due process of law.

Renata Correia Cubas is a partner focused on indirect taxation in Mattos Filho advogados.  

more across site & bottom lb ros

More from across our site

David Pickstone and Anastasia Nourescu of Stewarts review the facts and implications of Ørsted’s appeal at the Upper Tribunal.
The Internal Revenue Service will lose the funding as part of the US debt limit deal, while Amazon UK reaps the benefits of the 130% ‘super-deduction’.
The European Commission wanted to make an example of US companies like Apple, but its crusade against ‘sweetheart’ tax rulings may be derailed at the CJEU.
The OECD has announced that a TP training programme is about to conclude in West Africa, a region that has been plagued by mispricing activities for a number of years.
Richard Murphy and Andrew Baker make the case for tax transparency as a public good and how key principles should lead to a better tax system.
‘Go on leave, effective immediately’, PwC has told nine partners in the latest development in the firm’s ongoing tax scandal.
The forum heard that VAT professionals are struggling under new pressures to validate transactions and catch fraud, responsibilities that they say should lie with governments.
The working paper suggested a new framework for boosting effective carbon rates and reducing the inconsistency of climate policy.
UAE firm Virtuzone launches ‘TaxGPT’, claiming it is the first AI-powered tax tool, while the Australian police faces claims of a conflict of interest over its PwC audit contract.
The US technology company is defending its past Irish tax arrangements at the CJEU in a final showdown that could have major political repercussions.